The USD/JPY pair kept rising on Wednesday morning as Japan’s power issues escalated. It is trading at 121.04, the highest since 2016. Yen dropped by over 19% from its lowest in 2020. Others like the GBP/JPY AND EUR/JPY have also risen.
Japan power crisis
The USD/JPY has improved the past few months with a divergence between the Federal Reserve and the Bank of Japan (BOJ) increases. Last week, the Fed began its hawkish promise and warned of more hikes this year.
Last week, the BOJ convened, but it retained its rates and kept its asset purchases, unlike the Fed. It also promised more relaxed policies with an increase in Covid-19 cases.
Japan is distinct from the US and UK in that it has lower consumer inflation due to an aging population. Moreover, many people are price sensitive; thus, firms cannot hike prices. It also has one of the least employment rates, defying Philip’s curve.
The USD/JPY pair is also rising due to the current energy crisis in Japan. It is its worst crisis in years after a huge earthquake stretched the power greed. And on Tuesday, a blast of frigid weather worsened the situation.
Hence, companies and homes must reduce power usage to reduce forced power rationing. Therefore, this may lead to a slower economic recovery path preventing a hawkish BOJ.
The daily chart shows the USD/JPY pair rising over the past few months, crossing the important resistance level at 116.83, 2021’s highest in 2021. It has also risen above all moving averages.
Concurrently, oscillators like the Relative Strength Index (RSI) and the MACD kept rallying. Therefore, the USDJPY will probably keep going up as bulls target the next resistance level at 125p.